P&L Playbook for eCommerce by ex-SUGAR & Raymond Leader
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Navigating Inventory Discrepancy: Best Practices and Strategies

Navigating Inventory Discrepancy: Best Practices and Strategies

The disparity between the quantity that is listed in an organization's inventory management system and the quantity that is actually physically accessible is known as inventory record inaccuracy (IRI) or inventory discrepancy. IRI may cause serious problems in the retail industry, such as stockouts and revenue losses brought on by needless restocking.  Inventory discrepancy has a detrimental impact on replenishment estimates and inventory availability. IRI may be expensive for a business since it may interfere with the efficiency of the whole supply chain. IRI can result in a revenue loss of more than 1% of sales and more than 3% of gross profit in a retail setting. Causes of Inventory Discrepancy Stock loss Stock loss sometimes referred to as shrinkage in the business, refers to all kinds of losses of the goods that are offered for sale. Theft is an illustration that comes up frequently. This crime may be performed by both customers (external theft) and workers (internal theft). Additionally, it covers employee and customer collusion as well as unauthorised stock usage (such as eating) by both consumers and workers. Additionally, when conducting replenishment chores for their own inventory, the vendors have the ability to steal goods from the shop. Stock loss can also happen when goods lose their marketability due to spoilage, damage, or expiration.  Transaction error Typically, transaction errors happen on the facility's inbound and outgoing sides. Shipments from the suppliers must be registered in the store information system on the inbound side. The inventory record could not correctly reflect the real stock if there is a disparity between the shipping record and the actual shipment that goes unreported by the receiving clerk. The checkout registers are not immune from contributing to inventory discrepancy records on the outgoing side. Inaccessible inventory Products that exist someplace in the facility but are not accessible because they cannot be located are referred to as inventory discrepancy. This may occur if a customer removes a product from the shelf and sets it somewhere else. The store's rear room or any other storage space may likewise experience it. Eventually, the inaccessible goods will be located and prepared for sale. However, it can be some time before this occurs, and in the meanwhile, the unavailable items are effectively worthless in terms of sales. Incorrect product identification The identification of a product incorrectly can happen in a number of ways. Both suppliers and retailers have the ability to apply incorrect labels on the goods. The inventory record for the incorrect products will be altered when the bar codes on these labels are scanned during receiving or checkout. Manual inventory counts might sometimes result in incorrect identification. How to avoid Inventory Discrepancy The danger of supply chain problems, such as inaccurate client orders, product shortages, theft, damages, and financial loss for your company, is reduced by inventory accuracy. Inventory discrepancy might occur if you're in charge of keeping significant numbers of several SKUs. Not that there aren't measures to lessen hazards, though. Here are the recommended practices for preventing significant inventory discrepancy. Communication with suppliers When it comes to improving inventory control, having good supplier connections may make all the difference. If your supplier provides updates on your pipeline inventory at each stage, you can better plan when to receive it, how much of each SKU you're anticipating, and have it stored properly and promptly. Strong communication with your supplier helps prevent inventory discrepancy in the long term, as well as stockouts, overstocking, and lost goods. Update your inventory management systems Your business productivity is undoubtedly being held back by out-of-date technological solutions in this dramatically changing retail environment. With sophisticated inventory management software, you can be confident that SKU tracking is done automatically and that the inventory levels that are recorded are always current and correct.  Training employees Your team has to have access to skill-building seminars on everything from digital inventory recording and effective stock counts to inventory planning, warehouse setup, and warehouse receiving. Utilise this as an opportunity to explain to them the immediate and indirect effects that inventory discrepancies have on them, such as how they influence promotions, salary, employee profit sharing, and more. There may be fewer human mistakes once people are aware of the best practices. Partner with a 3PL Errors, no matter how tiny, may have a big impact on logistical operations. Accuracy, efficiency, and faults not only reduce earnings, but also have a negative effect on the customer experience. A 3PL gives better control while reducing expenses and saving you time by managing and automating your inventory management process. Approaches to Solution  No Information Scenario  In the No Information Scenario, the inventory manager orders stock in accordance with the routine, periodic inventory check without being aware that mistakes are made. The estimated cost in the No Information Scenario fluctuates over time as a result of mistakes that build up from one period to the next.  Informed Scenario The management making the decisions, in this case, is aware that mistakes are occurring and is familiar with their distribution (expected value and standard deviation). In a system with faults, which most inventory systems unquestionably have, the best course of action is static. The basic inventory level fluctuates throughout time as a result of the random variable of demand and the components even if the base stock policy is the best one. Static Informed Scenario The sole difference between this and the Informed Scenario is that in this case, the inventory manager simply considers the expected value of mistakes rather than their distribution. He does this because it is necessary to adopt a static base stock policy (which is obviously simpler to implement) and since this is the only accessible information. The progression closely resembles that of the Informed Scenario. The Full Information Scenario Complete information allows misplacement mistakes to be instantly identified and prevents incorrect scanning errors. Even though some researchers in the field of contemporary information data-gathering systems assert that they have decreased shrinkage, we presume that shrinking still takes place. Even so, shrinking happens but is instantly apparent. Implementing Robust Inventory Management Systems A. Centralized Inventory Tracking System Businesses should buy a centralized inventory tracking system in order to effectively manage their inventory discrepancy. This system constantly provides a comprehensive view of inventory by combining data from multiple sales channels, warehouses, and sales points into a single platform. Businesses can quickly find any issues and fix them with real-time inventory and movement updates. Inventory management processes are simplified by the centralized inventory tracking system, which eliminates the need for manual entry of information and reduces human error rates. Also, it facilitates seamless integration with other business systems, such as accounting and CRM software, which leads to more efficient workflows. B. Barcode and RFID Technology Barcodes and RFID technology are essential tools for precise tracking and recording of inventory. Businesses can automate the data capture process by using barcodes and RFID tags on products and storage units. This results in faster and error-free stock counting and replenishment. Barcode scanners and RFID readers make it easy for employees to scan items and update inventory records in real-time. It not only reduces the chance of data entry errors, but it also speeds up inventory processes, which means more efficient order fulfilment and shorter lead times. Barcode and RFID technology also makes it easier to see and track inventory. Businesses have the ability to monitor the movement of goods throughout the supply chain, from the time they reach the warehouse to the time they are delivered to the consumers. Businesses can take proactive measures to ensure inventory accuracy by using this level of visibility, which helps spot potential issues. Conclusion The disparity between the quantity that is listed in an organization's inventory management system and the quantity that is actually physically accessible is known as inventory record inaccuracy (IRI) or inventory discrepancy. Inventory discrepancy has a detrimental impact on replenishment estimates and inventory availability. Inventory discrepancy might occur if you're in charge of keeping significant numbers of several SKUs. Not that there aren't measures to lessen hazards, though. Here are the recommended practices for preventing significant inventory discrepancy. Businesses should buy a centralized inventory tracking system in order to effectively manage their inventory discrepancy.

July 27, 2023

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Inventory Audit & Reconciliation

Inventory Audit & Reconciliation

Inventory audit and Reconciliation of your inventory involves taking stock of what you have and ensuring that your stock records correspond to reality. To identify any inconsistencies that require attention, it's crucial to reconcile your inventory on a regular basis. You must make a stock reconciliation report that accurately reflects your current inventory as well as the addition or deletion of stock items from the database in order to do this. Inventory reconciliation involves comparing the stock's physical count to the data listed in the inventory records. The first stage in reconciling your inventory is to count the actual stock that is retained for sale in comparison to the proof of stock that has previously been recorded. In order to rectify inventory errors, inventory reconciliation often entails counting damaged or outdated products and determining their origin. This strategy enhances inventory tracking systems and theft avoidance. The record should always represent the real stock, therefore when discrepancies are found, they should be resolved and updated accordingly. Importance of Inventory Reconciliation If inventory data and records for inventory on hand do not match, merchants have difficulties. Shrinkage is unavoidable, even with the greatest inventory management tools. Compared to what is recorded, there may be an excess or a lack of products in stock. By routinely counting and reconciling inventory, retailers are better able to control loss and identify the root of discrepancies. It could be the outcome of administrative, human errors like wrong inventory counts or misplacing items in the stockroom, or it might be the outcome of a bigger problem like employee theft or supplier fraud. How to carry out inventory reconciliation? 1. Count the Products Count the available items and contrast the physical inventory with the inventory records. To cut down on mistakes, most businesses perform several counts. To match up with the records, this involves recording stock numbers and serial numbers. Your physical inventory can be done in a variety of ways. These are the typical approaches: cycle counting or a comprehensive inventory. Your team or a third-party inventory business will enter your facilities and count every physical item using the full inventory count technique. With a pencil and paper, barcode scanners, or RFID technologies, they can keep track of these counts. You'll discover that counts are less difficult and demanding to do if you conduct cycle counts for your inventory monitoring purposes. In cycle counts, your staff members count particular goods or regions of your inventory every day. You'll eventually count every item in your inventory, but only in parts. The benefit of this is that cycle counts may be performed without interfering with how your organisation runs on a daily basis. Because they just encompass a fraction of your warehouse, the smaller counts are less stressful and have a lower likelihood of inaccuracy. 2. Check Your Records Ensure the accuracy of your inventory data, including the inventory control systems. This also entails precise and recent sales and invoicing. Compare the stock records for each item with the inventory records. Verify the accuracy of any stock numbers and serial numbers. Items without corresponding serial numbers or stock numbers should have their inventory-on-hand counts and supplier invoices reviewed. Similar to the counting procedure, most businesses double-check record matching to ensure correctness. Missing documentation is one of the most frequent reasons for inventory inconsistencies throughout the reconciliation process. Documentation pertaining to inventory should be filed and preserved in one easily accessible area. This procedure can be managed more easily with inventory management software. This one pretty much speaks for itself. There are occasions when merchandise enters your warehouse without being properly checked in. If you discover any unlisted objects during your count, it's crucial to investigate them (by locating any relevant documentation, if feasible), add them to your inventory, and then list them for future counts. 3. Examine Discrepancies You may probably find inconsistencies if you compare the outcomes of your inventory audit. After the inventory audit is finished, it's time to deal with these errors. Math or human mistakes may be to blame for certain disparities. If it seems that's not the case, the next step is to review sales data to look for any indication that sales may not have been correctly recorded. If you cannot locate any missing sales receipts, you could have lost or misplaced goods or evidence of fraud or crime. 4. Chase Down the Discrepancies The appropriate degree of shrinkage in your firm is up to you to decide. It could be more time-consuming and expensive to identify the reason for the loss rather than continuing if there are a few items missing or they are of low worth. If you do decide to find it, start by looking at your systems, then your staff. On the store floor, in the warehouse, or on eCommerce platforms, steps are frequently skipped throughout the recording process. To find out whether there is a reason for the disparity that can be resolved, it is important to interview the personnel who are in charge of each phase. The crucial question in this situation is whether the disparity is significant enough to justify a resolution. You will occasionally need to "pick your battles" when it comes to resolving differences. For instance, it might not be worthwhile to invest time and effort in low-value things. 5. Compare results to previous reconciliations Compare your inventory reconciliation results to earlier ones. This can help in the identification of areas that need more research as well as the detection of trends and patterns. This is particularly advantageous if there are any unresolved difficulties. Knowing about these irrational worries enables you to concentrate more carefully on those particular topics, either preventing future issues or helping you identify the issue's root cause (shrink, human mistake, etc.). 6. Conduct reconciliation regularly The advantages are lost if inventory reconciliation isn't done on a regular basis. The regular maintenance of a stock reconciliation plan will increase data accuracy and save inventory costs. As a business grows, increasing inventory should be a key priority. By taking the effort to reconcile inventory, management is informed of any data inconsistencies and established stock processes are given a quality check. Using this information, managers may choose which inventory control systems to put in place to promote functionality and expansion. The amount of money spent on addressing stock mismanagement is reduced by establishing an efficient stock control system. Inventory Audit Standards Of course, a thorough inventory audit involves more than just stock counts. There are also monetary repercussions, such as avoiding potential tax issues by keeping your company in good standing with the number-crunching authorities. Additionally, each business will have its own set of warehouse guidelines to standardise internal processes and the administration of inventory audits. 1.The IRS Businesses can select from a number of suitable methods for cost flow assumptions, including FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average, according to the IRS. These presumptions affect financial statements and tax computations as well as how inventory costs are allocated. Businesses must choose and continuously use an acceptable cost flow assumption. 2. The SEC All publicly listed US corporations must follow the financial reporting criteria set by the SEC. Both Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) standards, which provide guidelines for inventory valuation, measurement, disclosure, and overall presentation of financial statements, must be followed by businesses in order to comply with SEC inventory audit rules. 3.The IFRS and AISB These two regulating organisations are intertwined. Imagine the yin and yang of financial reporting on a global scale. International Financial Reporting Standards are established by the IASB, an independent body. In order to provide accurate financial reporting across international boundaries, compliance makes sure that companies adhere to globally recognised accounting norms for inventory ownership. How WareIQ can Help in Inventory Audit? As a Record System, WareIQ provides Smart Inventory Audit Capabilities and a Smart Fulfillment Platform. It works well with top sales channels, WMS and ERP platforms, and courier partners.  It lets you see records, purchase orders, credit notes, orders, and sales data in real-time. WareIQ reduces mistakes by ensuring error-free processes and real-time updates on WMS and fulfilment platforms through its scan-based warding, picking, and putaway operations.  Furthermore, scan-based cycle counts on handheld devices increase counting accuracy, which allows for real-time execution without interfering with daily tasks. WareIQ's smart features enable businesses to manage their inventory efficiently and guarantee more efficient and smooth operations.  In a 90-day cycle timeline, WareIQ can help with its Daily Inventory Cycle Count with zero downtime. Our daily cycle counting process covers the entire inventory in a quarter, with 3.33% covered daily. It eliminates the need to stop operations for 5-7 days to count, which prevents business losses. By accounting for returned items, we guarantee no discrepancies. Return re-inventorization data is automatically synced and reflected within 24 hours, and real-time updates of Return QC rejects in the inventory master prevent discrepancies in the future. Our organized inventory storage system makes system updates simple. For easy later identification, all inventory items are marked and updated on our technology platform. Before picking, ensure that all inventory items are placed in the right bin, pallet, or rack. WareIQ's efficient inventory management system allows businesses to maintain accurate inventory records, carry out daily cycle counts without delays, and ensure a smooth, organized storage process for simple operations. Related read: Stock Audit: Objectives, Importance and 10 Procedures for Inventory Audit in eCommerce for 2025 Suggested read: Inside WareIQ’s Inventory Audit Strategy Conclusion Reconciling your inventory involves taking stock of what you have and ensuring that your stock records correspond to reality. You may probably find inconsistencies if you compare the outcomes of your inventory audit. After the inventory audit is finished, it's time to deal with these errors. Math or human mistakes may be to blame for certain disparities. Additionally, each business will have its own set of warehouse guidelines to standardise internal processes and the administration of inventory audits.

July 26, 2023
How to Sell on CRED? A Beginner’s Guide to Become a CRED Seller in 2025

How to Sell on CRED? A Beginner’s Guide to Become a CRED Seller in 2025

These days, many mobile apps, including PhonePay, Paytm, and numerous more, offer rewards to users. The CRED App is one of the newest applications to hit the market for digital payments. Many people have been looking for more information about the CRED App on Google as it has grown to be extremely popular. In this blog, we take a look at why you should sell on CRED, the steps to set up a CRED seller account, and the challenges faced by becoming a CRED seller. What is CRED? Kunal Shah, who also established Freecharge, founded the CRED App. Later, SnapDeal purchased Freecharge for $400 million. An app with a team of about 60 employees based in Bengaluru has already raised millions of dollars. It is the only app available as of right now that allows you to get reward points for paying your credit card bills. While Paytm also offers reward points for paying your bills, not all credit cards are eligible. The ability to redeem reward points through virtually any credit card is what sets CRED apart from the competition.  Your credit cards are connected to the online payment software CRED. The creator of the startup FreeCharge, Kunal Shah, created the app. The CRED App promises to automate and advance the use of credit cards. The software also provides users with a variety of incentives in the form of CRED coins, which can be exchanged for money or deals. The CRED app is not accessible to everyone, though. Only people with credit scores of at least 750 are permitted to use the CRED app. The app runs a credit check using the phone number associated with your bank account. You are added to a waitlist if you do not meet the requirements to access the app. [contactus_gynoveda] Why Should You Sell on CRED? You must establish a product listing in order to sell goods on CRED. This will contain the name of the product, a description, a price, and pictures. A payment method needs to be established as well. PayPal and Stripe are the payment methods accepted by CRED. You can start selling your product as soon as you've established a payment option. When someone purchases your product, they will be charged right away and you will get the money within a day. Through the CRED seller dashboard, you can keep tabs on your purchases and payments. The majority of providers permit their credit-worthy clients to postpone paying for their purchases. Buyers can keep, prepare and sell their purchases before having to pay the whole amount owed thanks to deferred payment arrangements. Without them, the majority of businesses would be forced to rely on costly, ongoing lines of credit. Giving clients service in order to persuade additional people to make a purchase is the essence of becoming a CRED seller. Credit is nearly always expected in some businesses, particularly capital-intensive ones. Businesses only use credit when the rise in sales makes it worthwhile to incur the related bookkeeping, bad debt, and carrying costs. For instance, credit sales make up the majority of Airbus' sales. On the other hand, cash is used in practically all of Burger King's transactions. Easy Steps to Sell on CRED and Open a CRED Seller Account Create a message describing the company and the product with a few links to the brand's website, social media, YouTube channel, or catalog. If you use credit cards frequently and have a lot of them, having this app will be very helpful to you. You can sell on CRED and setup a CRED seller account through the following steps: Download the CRED app. Apply for CRED membership and enter the one-time password to confirm your phone number. You can easily sign up to become a member if your credit score is higher than 750. As CRED has integrated with credit bureau Experian, all of your credit cards will be visible. Enter the card's concealed numbers to verify your cards before adding them to the app. You can now pay your bills to earn reward points when your card has been verified. Here are the measures you can take if your request to join the group is denied: If there are numerous mobile numbers connected to the various cards, try altering the contact information. If they have denied your application to sell on CRED without explanation, get in touch with their customer support. If your credit score is poor, say below 750, give it another go after some time has passed. Products Offered by CRED Sellers Solutions for credit risk management must be able to safely store, organize, and search data using a range of criteria. Any database, including CRED, must be continuously updated to prevent potentially outdated information and be keyword optimized to enable quick access to data. CRED sellers are constantly at risk of their sensitive information being mismanaged. The platform's goal is to generate income from four items that it introduced during the lockdown to manage its tasks during the COVID19 epidemic. The site had established two loan products in April 2020: "Rent Pay" and a credit line. "Rent Pay" was created with the intention of enabling customers to pay monthly rent and other recurring bills using credit cards. In the meantime, the credit line has been established to provide loans in collaboration with banks at a rate that is one-third lower than the market average. Around the same time, a brand discovery tool called "Discover" was also launched. In addition to the revenue share obtained from its credit line offering, the platform hopes to make money by charging to use Rentpay. Additionally, it intends to charge companies for putting their goods on the "Discover" platform, where customers may use CRED currencies to get discounts. The marketing effort for CRED's platform during the ongoing Indian Premier League (IPL) cricket season has also played a significant role in the platform's growth. According to a TechStory story, the business has reported growth in both its user base and the cash it is receiving. Conclusion: Is Becoming a CRED Seller Right for Your Business? Famous for its superior user experience, CRED's business strategy stands out by giving its clients the advantages listed below: With just five taps, you may pay rent, credit card balances, and other payments all at once. The success of this startup is due to its emphasis on the customer experience. The business has created a smartphone application that enables users to track their credit scores, make on-time bill payments, and apply for loans with ease. Customers who use the Cred app frequently are also eligible for prizes and discounts. Sell on CRED: FAQs

July 25, 2023
Amazon FBA vs Amazon 3PL: Pros and Cons

Amazon FBA vs Amazon 3PL: Pros and Cons

Amazon provides the Fulfilment by Amazon (FBA) service so that independent merchants can automate their order fulfilment and delivery processes. The idea is straightforward: Amazon ships, and sellers sell.  Anyone with a seller account on Amazon has the option of delegating all shipping tasks to Amazon, including returns and refunds, product storage in Amazon's warehouses, selecting and packaging, and more. Amazon 3PL solution might be useful if you are the owner of an online store with limited storage space or if you recently started an online store and don't want to handle inventory and distribution. Amazon receives the goods from the sellers and stores them all before processing the orders as they come in. The rest is taken care of for you as long as you manage the sales and make sure Amazon is kept supplied with your items. FBA Penalty Fees Online merchants that are thinking about adopting Fulfilment by Amazon (FBA) may want to think about storing and delivering their goods to Amazon. However, the regulations for shipping items to Amazon are convoluted and frequently alter. A merchant's items may no longer be accessible on Amazon due to a variety of faults.  These activities can result in fines, suspension from selling on Amazon, or even minor punishments like being suspended for a few hours. Products will be sent to the "problem-solving area" with even one of these errors, where they may languish for two hours, two days, or even longer. If Amazon sellers make several mistakes, they could have to pay fees to exit the problem-solving section.  Recycling boxes are practical and ethical but make careful to erase, write out with a black Sharpie, or conceal any remaining barcodes with tape or permanent stickers. That box will go to the section where problems are solved if Amazon must infer which label is the correct one. There must be one barcode for each item in the package. Additionally, each of those barcodes must be specific to the shape and colour of that one item on the Amazon site. Keep boxes under 50 pounds (23 kg) or as light as possible. Sellers run the danger of being prohibited from delivering any product at all if they frequently break these regulations and submit hefty shipments. No stock, no sales. Shredded paper, grass, and other loose packaging items are not permitted by Amazon. Use air pillows, huge sheets of 60-lb. weight kraft paper, or polyethene foam sheeting to block access to the problem-solving section, which has a specific vacuum for such items. Amazon 3PL When compared to using a warehouse, space will run out more quickly if you operate from home. As your firm grows, you can potentially take up all of your warehouse space. As you approach your threshold, completing orders could become more difficult and expensive, especially for large or heavy goods. It costs money and takes time to run goods to UPS or FedEx many times each day. You can overcome challenges like these and expand more quickly without compromising the client experience with the aid of an Amazon 3PL solution. This information may be useful if you're debating whether to hire a third-party logistics provider. Let's go through what Amazon 3PL is and how to tell if it's the best course of action. The Procedure For Amazon 3PL Order Fulfillment ReceivingWithout inventory on hand, a 3PL cannot ship orders. Receiving in Amazon 3PL warehouse refers to both receiving incoming merchandise and storing it. Each 3PL has its processes and spaces for receiving and storing merchandise.WarehousingAfter receiving your inventory, Amazon 3PL keep your items in 3PL fulfilment facilities. Whether it be a shelf, a container, or a pallet, every SKU has its exclusive storage area.  PickingOnce a consumer puts an order, the Amazon 3PL fulfilment procedure may begin. You may have heard the phrase "pick-and-pack fulfilment," which consists of two parts. This is the first part.You must manually upload orders to some 3PLs' databases. With your marketplace or eCommerce platform, other 3PLs may smoothly incorporate their cutting-edge technologies.PackingIt's time to pack an order securely for delivery once every item has been chosen for it. The packaging materials utilized will depend on your Amazon 3PL's capabilities, brand preferences, and shipping commodities.ShippingFollowing this, your purchase will be sent. Most 3PLs will purchase and print shipping labels on your behalf. Other 3PLs have preferred carrier partners, while some 3PLs assess shipping costs from several carriers. With the latter, 3PLs may provide consumers with the most affordable prices for the delivery speed that they individually choose.ReturnsMany 3PLs also provide return processing services. If a consumer returns an order to your 3PL, they will handle the return and, by their policies and preferences, either replenish the item or discard it. Pros of Amazon FBA Customer support One of the benefits of Amazon FBA is that Amazon handles all customer support and reverse logistics issues for orders that are fulfilled through the programme. If you've ever used Amazon to return something, you are aware of how simple the returns procedure is. Live chat, phone, and email are just a few of the ways customers may get in touch with employees. Additionally, when it comes to refunds, you as the business owner don't need to worry about a thing. Transparent fee structure Amazon's fees are very open, even though they can occasionally be expensive and confusing. There are no paywalls or small print. Even down to the category level, Amazon's charge structure is highly transparent.  Multiple channel fulfilment Using the inventory kept in Amazon's fulfilment centres to fill orders from other channels is one of FBA's competitive advantages. Yes, this implies that you may use your Amazon inventory to fill orders if you offer goods on your website. Even while you won't receive the same benefits from Prime as you would if you sold on Amazon's marketplace, FBA customers nonetheless stand to gain significantly from it. Cons of Amazon FBA No order customization The appearance of an Amazon shipment is well-known to everybody. the well-known brown box with the blue stripe and the Prime logo. It is now a common feature on virtually all American front porches. But if your company prides itself on offering customers a distinctive, personalised unpacking experience, Amazon FBA is just out of the question. Amazon does not provide personalised branding, unique inserts, or unique packaging. Limited access to Amazon’s team Because of their scale, Amazon just cannot afford to provide each of its FBA clients with personalised attention. This will be a major issue for people who require a lot of assistance when learning 3PL. There is just one hotline account, and there are no specific account managers to aid you along the way or come up with a plan. Amazon FBA might not be for you if you value being able to contact a live person at any time. No customer interaction On the other hand, during a transaction, you hardly ever engage with your consumers. If developing personal connections with your clients is vital to you, Amazon FBA might not be the right choice. You have more control and management over your consumer base with several smaller 3PLs. Even if you still have other methods to reach your consumers (such as your email list, social media following, and other channels), if you base your business entirely around Amazon, you'll probably connect with your customers far less frequently. Pros of Amazon 3PL More control over warehousing and fulfilment strategy Many smaller 3PLs will genuinely work with you to plan your storage and fulfilment strategy rather than just delivering your items to Amazon and leaving them to handle the rest. This might entail assisting you in distributing your goods in certain regions or entering new markets. More personal attention to your business Smaller 3PLs are aware that their infrastructure cannot match Amazon's. What they lack in scale, however, they make up for with individualised care and customised solutions. Many 3PLs will provide you with a dedicated account manager to work with you on strategy development, growth management, and logistical problems. Brand-building freedom This is perhaps the largest advantage of using an Amazon 3PL rather than Amazon FBA for business owners that truly want to develop a brand rather than merely a product. You are not constrained by the restrictions of Amazon's closed system, even though it does involve more work on your behalf (more on that in the disadvantages section). You may create your website, handle your marketing, and closely track and interact with your audience, among other things. Cons of Amazon 3PL Startup fees While most 3PLs can't afford to accept your fees on the back end, Amazon 3PL can. That implies that they will have to impose certain up-front fees to make the agreement profitable for them. This might take the form of a recurring monthly fee, an upfront setup cost, or various forms of payment that differ from provider to provider. If you lack the necessary funds, Amazon 3PL might not be available to you at this stage of your business.  Less flexible with sales fluctuations You can't hit Amazon with a curveball. Their employees, strategy, and fulfilment technologies are so cutting edge that they can easily handle any amount of sales fluctuations for your items. Smaller Amazon 3PL have fewer resources, including staff, equipment, and storage space. They might not have the resources to help you if you have a significant holiday surge.  Potentially slower shipping speeds Thanks to its infrastructure, Amazon can transport packages quickly. Amazon 3PL might not be able to match this, especially if they have fewer fulfilment sites. Your ability to convert or keep consumers may suffer as a result of this slow shipment. Related read: Check out top Amazon FBA Alternatives for 2024 How can WareIQ's Seller Flex Services Help sellers succeed? Sellers are constantly seeking ways to enhance their operations and improve customer satisfaction. WareIQ's Seller Flex services provide a robust solution for sellers leveraging the benefits of Amazon's Seller Flex program. Here's how partnering with WareIQ can help sellers flourish. Access a Pan-India Fulfillment Network WareIQ boasts a comprehensive network of Seller Flex-compliant fulfillment centres strategically located across India. This extensive reach allows sellers to: Strategically Position Inventory: Sellers can significantly reduce shipping times and enhance delivery speed by placing inventory closer to end consumers. Optimize Fulfillment Costs: With regional fulfillment, sellers can minimize shipping expenses, making it easier to offer competitive pricing. Maintain Control Over Inventory and Enjoy Prime Benefits One of the key advantages of WareIQ's Seller Flex services is that sellers can maintain control over their inventory and fulfillment processes while still enjoying the significant benefits of the Amazon Prime badge. This unique feature allows sellers to: Retain Adaptability: Sellers can manage their stock levels and fulfillment strategies according to their business needs, ensuring they can adjust quickly to changing market demands. Prime Badge Benefits: Despite managing their own fulfillment, sellers still benefit from the Prime badge, which enhances product visibility on Amazon. This badge signifies fast and reliable shipping and attracts a broader customer base, as Prime members prioritize Prime-eligible products. Ensure Accurate Inventory Management Effective inventory management is crucial for any seller, and WareIQ provides advanced solutions to ensure accuracy: Smart Inventory Management System: WareIQ employs a sophisticated inventory management system that includes daily inventory counts using scan-based devices. This ensures that sellers have real-time visibility into their stock levels. Comprehensive Audits: Regular audits help prevent missing inventory items and maintain necessary documentation for a seamless transfer of goods. Streamline Returns and Claims Management Returns can be a significant pain point for sellers, but WareIQ simplifies this process: In-House Quality Control (QC) App: WareIQ utilizes an in-house QC app to create photo and video proofs of the condition of returned items. This documentation is stored against the order ID/AWB on WareIQ's smart fulfillment platform. Streamlined Claims Management: With easy access to media proofs, sellers can simplify the claims filing process, reducing the time and effort required to manage returns. Benefit from Expedited Onboarding Getting started with Seller Flex can be a daunting task, but WareIQ makes it easier: Accelerated Onboarding Process: WareIQ's strategic partnership with Amazon allows for a faster seller onboarding process. Expert Support: The WareIQ team assists with all essential paperwork, ensuring a trouble-free transfer and a smooth start to the Seller Flex experience. By leveraging WareIQ's Seller Flex services, sellers can easily navigate the program's complexities. They can maintain Prime eligibility, optimize their fulfillment strategy, and focus on growing their business while WareIQ handles the logistics. Embrace the benefits of Seller Flex with WareIQ and take your e-commerce operations to the next level. Conclusion Amazon provides the Fulfilment by Amazon (FBA) service so that independent merchants can automate their order fulfilment and delivery processes. Online merchants that are thinking about adopting Fulfilment by Amazon (FBA) may want to think about storing and delivering their goods to Amazon. Amazon 3PL solution might be useful if you are the owner of an online store with limited storage space or if you recently started an online store and don't want to handle inventory and distribution.

July 25, 2023
Streamlining Inventory Management: Strategies for Optimal Control and Efficiency

Streamlining Inventory Management: Strategies for Optimal Control and Efficiency

The challenge of getting the right amount of inventory at the right place, at the right price is a long-standing issue. However, contemporary pressures such as e-commerce, globalization, and relationships between global trading partners have brought about a number of new inventory issues. Shifting all inventory from one system to another can be extremely challenging.  Where are my products? a question that every retailer is thinking about. Since a lot of things come into play when calculating how much inventory is available in warehouses, these questions are hard to answer. Inventory management is like a balancing act— Too much inventory leads to overspending on storage and risking expiring dates, while too little means fewer sales. Finding the right balance is hard. Customers expect more and more. A business's success depends on inventory management strategies to get the right product to the right place in a short time. This included providing an understanding of how much inventory is available, ordering items in-store, and delivering items within one or two days. Inventory Management Challenges and Solutions Inventory Audit and Reconciliation Limited real-time inventory visibility contradictions and errors, and manual and drawn-out inventory counting procedures are a challenge in determining the underlying reasons for disparities and inadequate use of resources during audits. Solution: Automated inventory tracking systems with advanced analytics and real-time updates remove visibility issues and reduce errors. During audits, technology-driven inventory counting techniques and root cause analysis tools help improve efficiency and maximize resource utilization. Keeping Track of Inventory in Real-Time When it comes to selling goods to customers and having the right amount of inventory available, mutations are important to take into account. You don't want to risk inventory damage or overselling. Having the right amount of products available and making the difference between selling your products and getting the sale compared to your competitor is an important first step to having real-time insight into inventory levels. Inventory management often involves manually updating inventory levels and locations in spreadsheets. Even though this might work for smaller companies, when multiple warehouses and sales channels are involved, working with spreadsheets becomes impossible.  Solution: Having a view of inventory levels in real time is the first solution. This is achieved through real-time connections between warehouses (where inventory is stored) and sales channels (where it is sold). This is the reason why endpoints for inventory management, such as warehouse management systems, and endpoints for sales channels, such as POS systems and online retailers, must be connected. Distressed Inventory & Overselling Distressed inventory is a second well-known issue in inventory management. Distressed inventory consists of goods that have reached the point where they can be sold for the normal price. Expiry dates of new products and out-of-season or out-of-fashion items are examples. Once inventory cannot be sold anymore, it may turn into dead inventory. In any case, distressed inventory results in revenue loss. Products end up being discarded, sold at a reduced price, or taking up valuable storage space. Solution: Always keep ideal inventory levels in place to avoid overselling or distressed inventory. As previously mentioned, it is almost impossible to accurately calculate these numbers using manual calculation. It allows for the calculation of each product's optimal inventory levels by using statistics like historical sales and current sales trends.  Additionally, business intelligence tools allow for the purchase of additional inventory prior to its depletion and oversold. It allows you to use Business Intelligence skills to determine when to buy more inventory or set certain purchase limits for products. Customers Expect Inventory Visibility Customers make decisions by searching for different product information, like price and availability. They want to be sure that the product they are about to order is available and will be delivered to them within a certain timeframe, or that it is available for pick-up at a nearby store. These are things that people do in the digital age. As a result, it is crucial that the inventory information they are seeking is always available. Solution: Only when sales channels (POS, webshops, marketplaces) and inventory are connected, you can show how many products are available for purchase in your channels. It updates the inventory in real time and keeps track of orders across channels. This means that all sales channels, both online and offline, must be connected to the inventory management system. Why is Inventory management important? Inventory should be closely managed because it is a big investment of company cash. Inventory plays a crucial role in operational functions, and it serves as a replacement for time in being able to meet customer demands.  When it comes to distribution, having inventory in a nearby warehouse allows the distributor to deliver the products to the customer very fast. Instead of asking the customer to wait until the product is manufactured, finished goods inventory allows shipment on the same day in manufacturing.  When a make-to-order product is ordered, production can begin immediately with raw materials and parts. To make the most of your company's investment and to ensure that the inventory you need is available when you need it, it is important to manage such a critical resource.  Inventory management has two basic parts: understanding what you have and managing acquisition. For having the inventory you need to satisfy customers and prevent shortages, knowing how much inventory you have and managing replenishment is important.  Good inventory management improves customer service, satisfaction, overall inventory investment, disruption, expediting, backorders and lost business. Strategies for Inventory Management Maintaining records Without a detailed record of your inventory, effective inventory management is almost impossible. Based on what you know is in stock, you make promises to your customers by accepting orders and quoting ship dates. You may not be able to keep your promises if the reality is different from the records, which will lead to unhappy customers and loss of business. The inventory tracking system, whether software, spreadsheet, or manual, depends on accurate transaction reporting. Inventory movement must be promptly and accurately reported to the tracking system. You can automate some data collection, mostly by scanning bar codes. Most inventory software will create bar-coded lists and labels, work with scanners, and control the data collection process. Automated data collection is not only faster because it doesn't need to be keyed into the inventory records, but it also eliminates many errors that come with manual processes. Planning beforehand Manufacturers use a method called Material Requirements Planning (MRP) to determine how much of each material and component item is required and when to finish the master production schedule. Distribution Requirement Planning (DRP) is a similar approach that distributors can employ. Both methods rely on demand forecasting (sales) and working backwards through the distribution network (DRP) or bill of materials (MRP) to arrange replenishment orders with quantities and start/due dates. This helps reduce inventory supply while avoiding shortages. Both methods require good predictions and accurate data, including inventory record accuracy. While some businesses find other strategies more advantageous for their specific markets, the point is that while inventory is costly, shortages can be deadly for a company. Simple management techniques like order point may not provide you with the combination of low inventory and high availability you need. Inventory management, planning, and optimization systems give you a lot of tools to be proactive in managing inventory in plants, warehouses, and throughout the supply chain. Focus Any inventory planning and control strategy aims to prevent shortages while reducing the inventory volume. Having more inventory is the easy way to reduce or avoid shortages. Inventory reduction increases the risk of shortages. Because variability is a third factor, this relationship can be altered. As mentioned in the previous section, safety stock is the standard method of compensating for variation that includes fluctuations in demand, also known as forecast error, and other unforeseen changes in supply or demand, including inventory accuracy errors.  Minimizing Lead Times and Lot Sizes for Improved Inventory Management Inventory would not be required if the lead time was zero. Because variability is time-sensitive, you will need more inventory and safety stock when the lead time is longer. Weekly variation is more likely than one day. Also, forecasts are more accurate in the near term than in the longer term. Replenishment planning is concerned with the replenishment lead time. Replenishment quantities can be reduced with a shorter lead time, which means less inventory is brought in at a time and used up more quickly. As a result, the overall inventory level can be reduced. The general concept of economic order quantity, also known as EOQ, is usually used to determine the replenishment lot size. EOQ covers both carrying costs (fixed costs related to making or purchasing an item, regardless of quantity) and ordering costs. The Core Rules of Inventory Management Satisfying Demand with Adequate Inventory Levels This rule comes from the first issue you might have with your inventory, which is whether items are in low stock or out of stock. You should never be in this position if you want your business to prosper. Companies would simply issue a backorder while they purchased or made more items when inventory ran out. Customers would then just wait for the item to be back in stock. However, as a result of the promises made by Amazon.com and other major online retailers, today's consumer is accustomed to a higher level of service. Order processing within 24 hours, prompt shipping, and cheap, fast delivery are all part of this higher standard. Consumers with these expectations don't like backorders. Say No to Overstocking! Going Out of Stock is a bad thing when trying to find ideal inventory levels—it causes backorders, which stop transactions and leaves customers unhappy. Management increases acquisitions to build an inventory “cushion” in response to persistent low or out-of-stock levels. Having a lot of inventory indicates that you have capital tied up and not available for other purposes.  However, overstocking also has hidden costs. Extra inventory means extra warehousing, which wouldn't be necessary if your business had more realistic inventory levels. Extra inventory could also result in a change in demand, which means that inventory must be sold at a high discount. Know well your inventory Having the right inventory level is often not the main issue. Knowing your exact inventory level and its state is the main issue. There are many issues when you have inaccurate stock-level information. Imagine having just the right amount of products for a certain SKU given demand, but your team is using old data to predict that your inventory will fall short of demand in a month. Commence the process of acquiring additional inventory in order to make up the difference. You will now have excess stock and overstock. Warehouse fluctuates between Overstock and Out of Stock situations. While non-moving items occupy floor space, fast-moving items never seem to be available, resulting in congested warehouse floors and unnecessary delays. Inventory Management Techniques A company will use different inventory management techniques based on the product or business being analyzed. Just-in-time (JIT) manufacturing, materials requirement planning (MRP), economic order quantity (EOQ), and days sales of inventory (DSI) are some management techniques. Although there are other options, these are the four most common methods for inventory analysis. TechniqueDescriptionBenefitsDrawbacksJust-in-Time (JIT)Inventory is ordered and received only as needed for production or sales.Reduces holding costs and waste.Risk of stockouts due to supply chain issues.Materials Requirement Planning (MRP)Uses sales forecasts to determine material needs and timing.Helps plan inventory levels and reduce shortages.Requires accurate sales forecasts.Economic Order Quantity (EOQ)Calculates the optimal order size to minimize total inventory costs.Balances ordering and holding costs.Assumes constant demand and cost.Days Sales of Inventory (DSI)Measures the average number of days it takes to sell inventory.Provides insight into inventory turnover rates.Can vary with seasonal demand changes. Just-in-Time Management (JIT) Japan had this manufacturing model in the 1960s and 1970s. The most significant contribution to its development was made by Toyota Motor (TM). By keeping only the inventory they need to make and sell goods, this method allows businesses to save a lot of money and reduce waste. As a result of this method, storage and insurance costs are reduced, as well as the cost of liquidating or discarding overstock. Materials Requirement Planning (MRP) This inventory management technique is based on sales forecasts, so manufacturers must have accurate sales records to accurately plan inventory needs and promptly inform materials suppliers of those needs. Chartered Institute of Procurement and Supply How to Do Effective Material Requirements Planning. For instance, a ski manufacturer could use an MRP inventory system to make sure that materials like plastic, fibreglass, wood, and aluminium are in stock based on anticipated orders. Manufacturers can't fulfil orders because they can't accurately forecast sales and plan inventory acquisitions. Economic Order Quantity (EOQ) In inventory management, this model works by determining how many units a company should add to its inventory with each batch order. This allows the company to reduce the total cost of inventory while maintaining consumer demand intact. The model includes holding and setup costs as inventory costs. Days Sales of Inventory (DSI) This financial ratio shows the average number of days that it takes for a company to turn its inventory, including work in progress, into sales. DSI, which can be interpreted in a number of ways, is also known as the average age of inventory, days inventory outstanding (DIO), days inventory (DII), days inventory sales, or days inventory. Inventory Management Software Establishing a successful business requires knowledge of what is in stock. Whether your customers shop in your store or online, the best inventory management software makes transactions easy in real time. However, the requirements of a restaurant or retail store are not the same as those of a small manufacturing plant, so it is essential to pick the right tools for your business. Use inventory software for two important purposes: tracking multiple items or selling on multiple platforms. Cloud-based tools can save time and give you full control over ordering shipping, and fulfilment processes. Some retail outlets and restaurants may have a POS system in place. However, manufacturers require software to monitor the assembly side, while e-commerce stores must keep all channels updated with real-time inventory. Companies often use data stored in databases to get information that helps them make decisions. Today, databases are a critical component of the business architecture model. Companies can use economic-mathematical methods to calculate goods stocks and estimate their investment attractiveness thanks to database technology. It highlights how vital database technology is for today's business information systems. Database technology helps management make decisions by providing information for assessment, analysis, planning, and control. "Frozen" stock asset turnover increases with good inventory management. Necessary resources will always be available and easy to get to. Which will prevent losing potential customers. Information Systems Supply Chain Management (SCM), as well as warehouse management modules (Inventory Management Systems), contain serious mathematical apparatus designated for inventory management optimization. Small businesses, on the other hand, prefer to use cheap but effective software like Microsoft Office. Today, the issue of reducing the cost of small businesses is very relevant, and other researchers have considered it in a number of different areas.  Inventory management tools (IMT) are a crucial component of the organization's management. IMT could be divided into two parts. One of them includes mathematical models and techniques for planning the optimal stock size, finding the optimal reserve supply chain, and finding the optimal service in reserve. Another includes an information system, which provides decision-making support with continuous registration data for goods accounting, stock calculation, and visualization results. Decision-making support is a critical component of IMT for businesses of any size. They offer query optimization, advanced user interfaces, and advanced technologies for data collection, integration, retrieval, and analysis. In this field, many OLAP tools are used. Inventory Optimization Stocking products helps companies around the world to supply their clients on time and provide a buffer against any unforeseen event. Planners can reduce production costs by producing longer batches because holding inventory separates the production process from the sales process. Inventory policies are just meant to accomplish a goal. The supply chain environment will also have to be considered. Setting the right objective will allow us to choose the best tradeoff between too much and too little inventory. Only if all relevant costs, including opportunity costs, are included in our model, then an inventory policy optimized for cost minimization will work. Inventory optimization is the process of making sure that the right amount of inventory is available to meet current and future demand. Companies can meet customer demand expectations and avoid costly inventory issues like overstocking, backorders, and stockouts by maintaining an ideal inventory level. Businesses try to avoid bad inventory management effects like lost sales, manufacturing delays, lower revenue, and lost customers. However, companies face a number of difficulties in achieving ideal inventory levels, especially when other supply chain parties have supply chain issues. Best Practices for warehouse management INVEST IN A GOOD WAREHOUSE MANAGEMENT SYSTEM Warehouse operations, including receiving, putaway, and replenishment, can be performed more efficiently with an effective warehouse management solution. Furthermore, it has the ability to connect to your ERP, TMS, and other systems in order to keep your inventory up-to-date, while making things more accurate, saving money, and satisfying your customers. The best-in-class approach to a WMS means that you have the best possible solution to meet warehouse requirements.  ELIMINATE PAPER PROCESSES AND MOVE TO REAL-TIME MOBILE WORKERS  Warehouse technology now allows data to be input directly into the WMS with mobile RF devices. As a result, data entry methods have been changed. When you convert handwritten data into electronic bits and bytes, you can avoid problems like readability issues, typing mistakes, and lost paperwork by scanning product barcodes and locations. Additionally, it maintains a more accurate, real-time inventory because, instead of waiting to see the data after it is entered manually into the system, mobile scanning devices update the information in the system right away. IMPROVE ACCURACY AND PRODUCTIVITY Automatically recording data can increase output and accuracy while reducing staff costs. Using real-time radio frequency identification tags and barcodes can speed up the process of getting products out of the dock and prevent human mistakes like counting and entering data into the tracking process. REFINE RETURNS MANAGEMENT Running a business requires returns. More than thirty per cent of all online orders are returned, and incorrect handling can have an impact on your bottom line. That is a good reason to improve your returns process. The WMS system must integrate with the return source, which is a customer service system, in order to record inventory disposition, including return-to-stock, damage, etc. Inventory returns must be handled efficiently and accurately. Summary Since a lot of things come into play when calculating how much inventory is available in warehouses, some questions are hard to answer. Inventory management is like a balancing act— Too much inventory leads to overspending on storage and risking expiring dates, while too little means fewer sales. Finding the right balance is hard. Customers expect more and more. Having the right amount of products available and making the difference between selling your products and getting the sale compared to your competitor is an important first step to having real-time insight into inventory levels. Always keep ideal inventory levels in place to avoid overselling or distressed inventory. It allows for the calculation of each product's optimal inventory levels by using statistics like historical sales and current sales trends. Inventory plays a crucial role in operational functions, and it serves as a replacement for time in being able to meet customer demands. When it comes to distribution, having inventory in a nearby warehouse allows the distributor to deliver the products to the customer very fast. To make the most of your company's investment and to ensure that the inventory you need is available when you need it, it is important to manage such a critical resource. Inventory management has two basic parts: understanding what you have and managing acquisition. For having the inventory you need to satisfy customers and prevent shortages, knowing how much inventory you have and managing replenishment is important. Without a detailed record of your inventory, effective inventory management is almost impossible. Based on what you know is in stock, you make promises to your customers by accepting orders and quoting ship dates. Automated data collection is not only faster because it doesn't need to be keyed into the inventory records, but it also eliminates many errors that come with manual processes.Manufacturers use a method called Material Requirements Planning (MRP) to determine how much of each material and component item is required and when to finish the master production schedule. Inventory would not be required if the lead time was zero. Because variability is time-sensitive, you will need more inventory and safety stock when the lead time is longer. Weekly variation is more likely than one day. This rule comes from the first issue you might have with your inventory, which is whether items are in low stock or out of stock. You should never be in this position if you want your business to prosper. Companies would simply issue a backorder while they purchased or made more items when inventory ran out. Extra inventory means extra warehousing, which wouldn't be necessary if your business had more realistic inventory levels. Extra inventory could also result in a change in demand, which means that inventory must be sold at a high discount. Having the right inventory level is often not the main issue. Knowing your exact inventory level and its state is the main issue. There are many issues when you have inaccurate stock-level information. By keeping only the inventory they need to make and sell goods, this method allows businesses to save a lot of money and reduce waste. As a result of this method, storage and insurance costs are reduced, as well as the cost of liquidating or discarding overstock.

July 17, 2023
The Ultimate Guide to Streamlining Physical Inventory Processes in Warehouses

The Ultimate Guide to Streamlining Physical Inventory Processes in Warehouses

If people don’t understand the importance of accurate stock balances, your chances of getting accurate counts are low. Thus, it is essential to explain why a physical inventory is required for all participants. Everyone in your company must understand that having a physical inventory is not designed to please your accountant or tax authorities. It is to make sure that the amount of each item you have on your computer corresponds to the amount that is actually on the shelf. Customer service personnel must be able to trust your computer's stock quantity. Physical inventory management is a very costly process. It typically means a lot of labour costs and time lost in production. The money spent on the real thing is wasted if the resulting count is wrong. What steps can you take to make sure that your physical inventory is adequate? When people are preoccupied, they may not be focused on the tasks at hand.  Physical inventory counts are done manually, which is time-consuming and prone to errors. Inventory check or pick processes, for example, cause errors to surface when someone has to physically touch or scan inventory during the put-away process. Finding, counting, and recording each item takes a lot of time, but the fact that those items may be stored in several places in the warehouse or storeroom makes the process even more complicated. Even after the physical count is finished, it takes even more time to figure out what went wrong, fix any errors, and follow the procedures to avoid making the same mistakes again. Physical counts of Inventory Customer Satisfaction & Efficiency Customers who don’t want to deal with uncertain stock levels in the era of instant gratification benefit from performing a physical inventory count in the end. Companies can avoid costly overstock situations and fulfil orders promptly when needed with updated inventory data. They can also more effectively plan for losses. Reduced Inventory Holding Costs Every day an item stays in stock, its value decreases. Over time, the item's actual value begins to outweigh its stock cost. Companies can improve their counting accuracy and drastically reduce the time required to complete this crucial project by immediately addressing inventory discrepancies by using scanners or other stock-counting technology tools in SKU.  Discrepancy Identification Physical inventory counts, which act as a check and balance on cycle counting, help managers find any differences between what items are actually in storage and cycle count reports. Unrecognized Inventory Discrepancies Lost, stolen, or broken items can cause a discrepancy between what is shown in the inventory management system and what is actually there. When these scenarios occur, the system cannot recognize the items unless staff manually enter them. Types of Stocks Found in an Industry Inventory basically falls into the overall categories of raw materials, work-in-process, finished goods, consumables, service repair, operating supplies & spares. Work-in-process (WIP) Items are defined as the period during which the raw material is transformed into subassemblies, finished products, and partial products. Delays in work, queuing bottlenecks, and long intervals between operations are examples of work in progress. Finished product This is a product that is ready to be sold to current customers. It can also be used to protect manufacturing from market demand that is unpredictable or unpredictable. In other words, a manufacturing company can ensure a year-round supply of goods in order to ensure predictably higher sales during the holiday season. Consumables Various operations use light bulbs, hand towels, computer and photocopying paper, brochures, tape, envelopes, cleaning materials, lubricants, paint, dunnage (packing materials), etc. Often, these are treated as raw materials. Service, repair, replacement, and spare items These are after-market products that are used to "keep things going" as long as a certain machine or device is in use (on the market) and will require maintenance and repair in the future. Difference between periodic cycle counting and physical inventory counting Cycle counting not only makes the count more accurate but also allows for an annual review of each line or product segment. This counting typically occurs once a year. IRS regulations and Generally Accepted Accounting Principles (GAAP) dictate either using a perpetual counting system or counting the entire inventory on an annual basis. Thus, the organization must choose which counting system is best for it.  Cycle counting is a constant counting method that counts a small subset of inventory on a specific day in a specific place. Cycle counts regularly verify your system's inventory accuracy. Large-scale companies, which have a lot of items in their inventory and can't be closed for a long time, likely like to use this method of counting for their annual physical inventory count. Cycle counts provide organizations with the following advantages: Avoids annual physical count, reduces operational interruptions, and saves more money. By giving buyers insight into what items should continue to be stocked, this process improves inventory turnover and helps in identifying sales opportunities that have been missed. While the benefits of cycle counting have rendered annual physical counts nearly obsolete, some organizations with a small inventory may opt for an annual physical count.  One advantage of doing an annual physical count is that it lets you start the new year with a clean slate by closing down operations at the end of the year and counting inventory. While starting the new year fresh is nice, the drawbacks of annual physical counts usually outweigh the benefits. Annual physical counts have some drawbacks, including: Receiving, production, and shipping operations must be stopped to count all inventory, which takes time and resources. Counting that is not automated has a higher probability of error. Challenges With Physical Inventory Counts Tracking the quantity of goods purchased and sold is theoretically simple, but it is sometimes challenging to manage. It also includes actual product purchase costs and inventory turnover rates, both of which can raise a company's total inventory investment. Companies must have enough inventory on hand and in the right places to meet demand while avoiding overstock and stockout.  Inventory counting manually, which typically requires paper count cards, sheets, and pencils, is one of the most challenging aspects of physical inventory counting. Additionally, because some businesses may not have enough employees, they may have to hire temporary or part-time workers to help with the accounting, which leads to more costs.Although the required materials are cheap enough, this method requires a lot of time, causes mistakes, and requires the physical facility to be shut down. Companies can simplify this by incorporating RFID, barcodes, or mobile devices into their mix. However, even the electronic method for physical inventory counting is not entirely error-free and requires more time and resources. If not done properly, physical inventory counting not only takes time but can also cause errors. These errors can affect the company's bottom-line profitability and doubt its stated financial results once they are added to the company's annual financial report and other important statements. Inventory Auditing Methodologies for Accuracy and Efficiency Daily Inventory Cycle Counting: To allow proactive identification and resolution of inconsistencies, which results in high inventory accuracy.Reconcile Physical Count with Record: For the purpose of identifying any differences (theft, damage, data entry mistakes, or other causes).Investigate Discrepancies: Involves looking through transaction records, personnel interviews, and security measures to find the root of the problem.Quarterly Audit Reporting: The ultimate end-to-end report is presented to the clients every three months, with daily inventory coverage of 3.33%.Process Improvement: We apply process improvements, optimisation, and streamlining inventory techniques based on audit results. Conclusion Everyone in your company must understand that having a physical inventory is not designed to please your accountant or tax authorities. It is to make sure that the amount of each item you have on your computer corresponds to the amount that is actually on the shelf. Customer service personnel must be able to trust your computer's stock quantity. What steps can you take to make sure that your physical inventory is adequate? When people are preoccupied, they may not be focused on the tasks at hand. Physical inventory counts, which act as a check and balance on cycle counting, help managers find any differences between what items are actually in storage and cycle count reports. 

July 13, 2023
Inventory Turnover Ratio: The Ultimate Metric for E-commerce Growth

Inventory Turnover Ratio: The Ultimate Metric for E-commerce Growth

As previously mentioned, overhead costs are reduced and, as a result, the company's profitability performance improves by minimizing inventory holdings. Ideally, the inventory turnover ratio would be found by dividing sold units by on-hand units. However, because the financial statements themselves only contain monetary valuations, external evaluation of inventory turnover must rely on the valuation metrics recorded under GAAP:  Cost of Goods Sold/Average Inventory  = Cost of Goods Sold/(Beginning Inventory+ Ending Inventory)/2 While it is theoretically better to benchmark the Cost of Goods Sold for the entire year by using the average balance sheet inventory amounts, some analysts simply use the ending inventory number for computational expediency, which causes a minor inaccuracy in firing.  Inventory Turnover Ratio When product flow changes over the year and inventories contract and grow over time, more frequent inventory level measurements are needed to determine an accurate average inventory level.  Exhibiting high and low turnover ratios simplifies inventory turnover ratio explanations. Inventory issues prevent many businesses from surviving this. A low inventory turnover ratio indicates that a company may have overstocking or a lack of marketing or product line effort. Because inventory typically has high storage costs and zero return rates, it is a sign of ineffective inventory management. An increased inventory turnover ratio is seen as a good sign of good inventory management. Nevertheless, a higher inventory turnover ratio does not necessarily imply better performance.  The inventory period, which is the number of days worth of inventory on hand, calculated by dividing the inventory by the average daily cost of goods sold, is a common term for inventory turnover:  Inventory Period = Average Inventory/Annual Cost of Goods Sold There are several things to keep in mind when calculating the turnover ratio: -  Only think about the cost of goods sold from stock sales filled with warehouse inventory. Direct shipments and non-stock items are not included. It is clear that these sales are significant, but they don’t include your inventory investment. The formula's cost of goods sold figure includes the number of stock goods that are transferred to other branches and the amount of these goods that are used for internal purposes like repairs and assemblies. Inventory turnover ratio is based on the cost of items (what you paid for them), not sales dollars (what you sold them for).  The average value of stocked inventory determines inventory turnover. Calculate the total value of every product in inventory (quantity on-hand times cost) on the same day every month to find your average inventory. Be sure to use the same cost basis (average cost, last cost, replacement cost, etc.) when calculating the cost of goods sold and the average inventory investment.  If your inventory levels tend to fluctuate throughout the month, calculate your total inventory value on the first and fifteenth of each month. Find the average inventory value by averaging all inventory valuations from the previous twelve months. Flaws in Inventory Turnover Ratio Calculation and Implications for Financial Analysis The average value of stocked inventory determines inventory turnover. Calculate the total value of every product in inventory (quantity on-hand times cost) on the same day every month to find your average inventory. Be sure to use the same cost basis (average cost, last cost, replacement cost, etc.) when calculating the cost of goods sold and the average inventory investment.  These are:  1. Utilizing Sales Revenue rather than Cost of Goods Sold in the numerator.  2. Failing to account for the off-balance sheet LIFO Reserve in the denominator.  If your inventory levels tend to fluctuate throughout the month, calculate your total inventory value on the first and fifteenth of each month. Find the average inventory value by averaging all inventory valuations from the previous twelve months.  Turnover Goals Consider the average gross margin you receive on product sales when you determine your inventory turnover goals. Distributors with 20% to 30% gross margins should aim for five to six turns per year. When your business has high gross margins, you can afford to rotate your inventory less often.  A six-turn turnover rate per year doesn't mean that every item's stock will turn six times. The stock of popular, fast-moving goods should be rotated more frequently—even twelve times a year. Items that move slowly may turn only once or even not at all. Finally, calculate inventory turnover for each product line in every warehouse individually. This will help you find out when your inventory is not earning enough return on investment. Reducing the quantity you typically buy from the supplier can help improve inventory turnover. When you buy less of a product and more frequently, inventory turns out to improve. Companies have few funds to invest in inventory. They can't have a lifetime supply of all things. Firms must sell the goods they bought in order to get the money necessary to pay bills and return a profit. The rate of inventory turnover is a measure of how quickly inventory is moving through the warehouse. Inventory turnover, when used in conjunction with other metrics such as return on investment and customer service level, can provide a reliable indicator of a company's success. Interpretation of stock turnover ratio The inventory turnover ratio creates a connection between the following components: Cost of goods soldAverage inventory The result of the stock turnover ratio formula shows how many times a company has managed to sell all of its stocks within a year. Increased inventory turnover is not always a sign of better performance. Insufficient inventory can also lead to sales opportunities being lost. Cost of goods sold, also known as revenue cost, refers to the direct costs involved in producing goods or services, which include material, labour, and overhead costs that are sold. These expenditures are directly connected to income. The actual cost of the produced and sold goods is what the term "cost of goods sold" is meant to indicate. Conclusion A common measurement of how well a company manages its assets is the inventory turnover ratio. As previously mentioned, overhead costs are reduced and, as a result, the company's profitability performance improves by minimizing inventory holdings. Exhibiting high and low turnover ratios simplifies inventory turnover ratio explanations. Inventory issues prevent many businesses from surviving this.  A low inventory turnover ratio indicates that a company may have overstocking or a lack of marketing or product line effort. The formula's cost of goods sold figure includes the number of stock goods that are transferred to other branches and the amount of these goods that are used for internal purposes like repairs and assemblies. If your inventory levels tend to fluctuate throughout the month, calculate your total inventory value on the first and fifteenth of each month.  Find the average inventory value by averaging all inventory valuations from the previous twelve months.  Companies have few funds to invest in inventory. They can't have a lifetime supply of all things. Firms must sell the goods they bought in order to get the money necessary to pay bills and return a profit. Cost of goods sold, also known as revenue cost, refers to the direct costs involved in producing goods or services, which include material, labour, and overhead costs that are sold. These expenditures are directly connected to income. 

July 13, 2023
Maximizing ROI with Effective Work in Process Inventory Management

Maximizing ROI with Effective Work in Process Inventory Management

It is well known that the industry is at the threshold of transformation, which will have a significant effect on the production of goods, the provision of additional services, the labour market, the working environment, and customer behaviour. The majority of production companies are interested in continuous cost reduction. The cost reflects the company's competitiveness and sustainability. Manufacturing efficiency is linked to many business costs.  work in process inventory is one of these costs.  The demands of society have always been met by research. Companies have evaluated these needs to meet them as scientific inventions. Since the Industrial Revolution, four major scientific have given companies a significant competitive advantage. The use of water and steam force was the first advancement that changed the production process. This contributed to the beginning of genuine mechanization and has also served as the foundation for further. Electrification and process thinking were the main subjects. Henry Ford was the first to implement this processing change. A movable assembly line, which made products move from one job to another, was the first process developed; This was in opposition to the prevailing trend. This enabled a reduction in production costs and an increase in production in order to meet mass demand.  Importance of effective Work In Process Inventory management for maximizing ROI The JIT model helps organizations replenish work in process inventory in SKU when it is needed. When it comes to very expensive inventory items—that is, those with relatively higher purchase prices, holding costs or ordering costs, but low demand—this will be the best approach. The model tries to avoid overstocking and the costs associated with it. Consequently, organizations only receive six inventories when the need for additional stock rises. Vendors must ensure prompt delivery for the JIT approach to succeed.  This is to prevent costly and irreparable business interruptions caused by work in process inventory delivery delays. Just-in-time, a developing field of scheduling, aims to increase return on investment by lowering work in process inventory and carrying costs. JIT is recognized as a production scheduling strategy in single and parallel machine environments, but it is now being taken into consideration in flow shop machine environments. Different types of inventory in a manufacturing environment Inventory can be classified into three types which include; Raw material inventory This includes all items purchased by an organization for processing. For instance, a confectionary organization has flour, yeast, eggs, and other raw materials in its stock. Work In Process Inventory This is an interim stage of raw material inventory that the plant needs to complete before moving on to another stage of processing. These are materials that have been somewhat processed but are still not finished.  Finished Goods Inventory This is the stock of products that have been completed. Regardless of whether the stock is in the warehouse or awaiting shipment, the level of finished goods stock is a matter of coordination between the organization's sales and production departments. However, warehouse management includes a variety of warehouse tasks, including inventory management. Lean Manufacturing for Managing Work In Process Inventory Lean manufacturing is an innovative paradigm that aims to eliminate waste in any form, anywhere, and at any time. It constantly strives to maintain a balanced flow of materials and information and always strives for perfection. Today, industries are using lean manufacturing ideas to reduce waste and increase efficiency. Lean philosophy has been recognized as one of the most important methods for increasing productivity, which increases an organization's competitiveness. Lean production is usually categorized under the category of process improvement programs; This category also includes other approaches like total productive maintenance and business process re-engineering theory of constraints.  Lean production is a multi-dimensional approach that incorporates a variety of management practices into an integrated system, such as just-in-time, quality systems, work teams, cellular manufacturing, supplier management, etc. Lean manufacturing principles What does it mean?EnablersStandardizationStandardized work procedures to do routine and repetitive tasks to improve efficiency and quality.  Standard work procedures, Design blueprints Simple and specified pathwaysThe flow of work to the right machine or person in the right form at the right time at the lowest cost with the highest quality possible which reduces production lead time.Kanban system, JIT Teaching and LearningThrough the continuous effort of managers and supervisors acting as enablers or mentors in solving problems.Scientific methods of problem-solving SocializationAn atmosphere of trust, respect and common purpose in which work is performed to improve efficiency and productivity. Consistency, consensus and communication  Continuous improvementExperimentation by the people at every level toward improving their own work systems. Kaizen, TQM, Six Sigma, JIT etc. Supplier-customer relationship  Supplier-customer relationship specifies the form and quantity of the goods and services to be provided, the way requests are made by each customer, and the expected time in which the request will be met.Long-term cooperative relationshipsCoordination through rich communicationCommunication is required to develop the idea into an innovation. go-see, involvement of suppliers early during PDFunctional expertise and stability  Every company depends on highly skilled engineers, designers, and technicians to bring a product to the market; it is about developing a standard set of skillsJob rotation policyThe pursuit of perfection / striving for the ideal goal It is common sense of what the ideal system would be, and that shared goal motivation to make improvements beyond what would be necessary merely to meet the current needs of their customers. Sharing a common goalCultivating organizational knowledgeIt shows the faith of the organization that the skills and knowledge generated will pay off later. knowledge sharing practices Table: Status of implementation of Lean manufacturing principles in the context ofIndian Industry: A Literature Review Tools and Technologies for Effective Work In Process Inventory Management Manufacturing execution systems (MES) Satisfying a variety of customer requirements and reaping benefits from mass and craft production, mass Mass customization production (MCP) satisfy a variety of customer requirements and reaping benefits from mass and craft production Emergency orders and frequent engineering changes are some of the disturbances that typically occur in MCP companies because customer orders and operation times are very unpredictable. Because a lot of parts and components used in mass-customized products are one of a kind, it is difficult to estimate the setup and processing times involved. Normal production plans and schedules will be affected by such uncertain disturbances. Furthermore, snowball effects such as delays in customer orders, logistics errors, and high levels of work in process inventory are caused by these disruptions.  RFID devices are systematically deployed on the shop floor to track and trace manufacturing items and collect production data in real time. RT-MES finds and manages disturbances. Decisions regarding planning and scheduling are made and executed more efficiently and accurately. There are online tools that allow you to visualize and monitor the dynamics of shop floor work in process inventory (WIP) in real time. Internet of Things (IoT) and real-time monitoring: Cloud-Based Smart Car Parking To best support the urban core, parking issues are becoming more and more pressing. Current trends in meeting the globally connected continuum could turn these persistent parking issues into new opportunities. New technologies that allow cities to reduce traffic and carbon emissions have changed the parking industry.  The parking industry has become more and more dependent on the Internet of Things (IoT), which has enhanced processes and enabled intelligent parking solutions that increase and manage parking inventories. Here, the Internet of Things (IoT) uses embedded wireless sensor networks to connect physical parking space infrastructures to information and communication technologies. Through these connections, cloud-based smart management services are provided.  Additionally, this shift in interconnectivity is driving social and economic transformations. For example, when physical infrastructure data is released, new applications and new business models are driving increased productivity. Parking space owners, be they individuals or businesses, can now market their assets with a Parking Service Provider (PSP) by turning unused parking spaces into money. Conclusion The majority of production companies are interested in continuous cost reduction. The cost reflects the company's competitiveness and sustainability. Manufacturing efficiency is linked to many business costs.  work in process inventory is one of these costs. When it comes to very expensive inventory items—that is, those with relatively higher purchase prices, holding costs or ordering costs, but low demand—this will be the best approach. JIT is recognized as a production scheduling strategy in single and parallel machine environments, but it is now being taken into consideration in flow shop machine environments. Lean manufacturing is an innovative paradigm that aims to eliminate waste in any form, anywhere, and at any time. It constantly strives to maintain a balanced flow of materials and information and always strives for perfection. RT-MES finds and manages disturbances. Decisions regarding planning and scheduling are made and executed more efficiently and accurately. There are online tools that allow you to visualize and monitor the dynamics of shop floor work in process inventory (WIP) in real time.

July 12, 2023
Revolutionizing Inventory Control: The Perpetual Inventory System and Its Benefits

Revolutionizing Inventory Control: The Perpetual Inventory System and Its Benefits

A perpetual inventory system is a stock management technique that updates stock levels when there are transactions, like sales, purchases, or returns of purchases. This technique can monitor sales and remaining stocks to prevent stockouts and out-of-stock. The software was developed using an Extreme Programming approach and an Agile Development Method, and it was tested in the Black Box to make sure all the necessary features worked. Stock control helps a company be more competitive, prevent stockouts and out-of-stock losses, and increase revenue. A perpetual inventory system is better than older periodic inventory systems because it keeps sales and inventory levels up to date, reducing stock-outs. This is its advantage. Solving inventory cost analysis issues is gaining popularity. Inventory models were numerous before control systems. Increased efforts have been devoted to the development of novel or amended inventory control systems. There are issues related to computer network congestion control. One applies work-in-progress to account for the destabilizing effect in the perpetual inventory system in order to make a fair comparison between a classical stock-based order-up-to policy and PD with the Smith predictor inventory control system.  Parameters of Perpetual Inventory System The application of the Perpetual Inventory Method (PIM) requires estimates and assumptions on three parameters:  Service life  However, statistical estimates of service lives are limited. Fiscal data and bookkeeping practices are the most important sources of information. Fiscal sources, annual business reports, and global data are also examined. A table of "best-practice" service lives by asset and industry was created by analyzing and combining all sources.  Discard pattern  It is commonly stated that in PIM, service lives are the only relevant parameter, and discard patterns' impact is negligible. As a result, in PIM, a simple step function is most frequently used. When capital stock is divided into vintage classes, the delayed linear survival function works well. It is also an approximation to any other survival functions used in this report. The delayed linear method also makes calculations less difficult.  Depreciation method PIM calculations can include a depreciation pattern in addition to service lives and discard patterns. The calculations, for which the results are shown in the previous chapters, use straight-line depreciation. This indicates that a portion of a vintage of assets is written off annually.  Benefits of Implementing a Perpetual Inventory System Because there is always inventory, companies don't have to close the doors for physical inspection. Moreover, stock forecasting and economic order quantity are made easier by using scanned barcode details. It certainly helps you predict future sales cycles by guaranteeing accurate inventory availability during different seasons, like public holidays. Furthermore, it helps in determining the point at which to reorder, which prevents overstocking issues. Also, using Point of Sales terminals helps to calculate when, what, and how much to stock.Please be aware that all transactions involving inventory are recorded in the perpetual system. As a result, it is easy to find mistakes. This not only supports the maintenance of total management but also helps direct transaction inquiries in order to facilitate training and operations. Furthermore, it increases the accuracy of inventory records over time.The value of the closing stock can be known at any time during the year because of continuous stocktaking. At the end of the financial period, it greatly simplifies the preparation of profit and loss accounts and balance sheets.A system of ongoing inventory control ensures that materials and stores are regularly received and delivered. This significantly reduces the investment in materials and minimizes storage expenses. A well-designed system for continuous inventory control allows for immediate identification of materials waste, leakages, and theft. Implementation of a perpetual inventory system The POS system automatically adjusts your inventory levels when you use perpetual inventory. Inventory management and purchases are made easier when you can always access your inventory reports online.  However, perpetual inventory systems are not always completely correct. Your company's inventory accuracy can be affected by a lot of things. You may forget to record a transaction or get robbed by your employees. To compare totals, occasionally check your actual inventory quantity.  When it comes to perpetual inventory, the calculations are typically done as you go instead of waiting until the end of the accounting period, which is the case with periodic inventory. Companies that use POS systems and sell valuable goods usually use perpetual inventory systems to count their inventory regularly. Challenges of Perpetual Inventory System Although a perpetual inventory system has many benefits, small businesses face some drawbacks. Initial and ongoing costs are higher because it takes more money to buy hardware, software, and training to implement and maintain the system. Regular backups and updates are also required to ensure reliability and security. Strict rules and protocols to ensure data accuracy and consistency increase complexity and workload. Furthermore, data errors and system failures, including human errors, data entry mistakes, and system glitches that may affect inventory records, must be taken into consideration. Backup systems and contingency plans are critical in case of power outages, network disruptions, or cyberattacks.  Perpetual vs. Periodic Inventory Systems The distinction between the two systems lies in the way they function. Computerized point-of-sale technology monitors sales continuously and instantly in perpetual inventory systems. Periodic inventory systems require a point-in-time count to track sales. A perpetual system works well for large companies or those with complex inventories. A regular system is often enough for smaller businesses with limited inventory. The same applies to the margin for error—a perpetual system has a lower margin for error, but a periodic system may have a limited, simple inventory.  An important accounting metric, the cost of goods sold (COGS), is calculated by adding the beginning balance of inventory to the cost of inventory purchases and subtracting the cost of ending inventory. In contrast to the alternative physical inventory, COGS is updated continuously with a perpetual inventory system. Conclusion A perpetual inventory system is better than older periodic inventory systems because it keeps sales and inventory levels up to date, reducing stock-outs. This is its advantage. Solving inventory management issues is gaining popularity. Inventory models were numerous before control systems. This technique can monitor sales and remaining stocks to prevent stockouts and out-of-stock. The value of the closing stock can be known at any time during the year because of continuous stocktaking. At the end of the financial period, it greatly simplifies the preparation of profit and loss accounts and balance sheets. A well-designed system for continuous inventory control allows for immediate identification of materials waste, leakages, and theft. However, perpetual inventory systems are not always completely correct. Your company's inventory accuracy can be affected by a lot of things. You may forget to record a transaction or get robbed by your employees. To compare totals, occasionally check your actual inventory quantity. A perpetual system works well for large companies or those with complex inventories. A regular system is often enough for smaller businesses with limited inventory. The same applies to the margin for error—a perpetual system has a lower margin for error, but a periodic system may have a limited, simple inventory. The distinction between the two systems lies in the way they function.

July 11, 2023
Inventory Cost Analysis: Uncovering Inefficiencies and Maximizing Profitability

Inventory Cost Analysis: Uncovering Inefficiencies and Maximizing Profitability

The stock of any item or resource that an organization uses is known as its inventory. Inventory levels are managed and maintained by a set of policies known as an inventory system. It decides how large orders should be and when stock should be replenished. Reducing overall costs and increasing profits is every manufacturing organization's main goal. Inventory costs consist of four expenses: purchase, ordering, inventory carrying, and shortage.  Companies are increasingly looking at their business as a pipeline, which controls the flow of materials from the source to the ultimate consumer. The pipeline inventory concept is not entirely new in terms of substance—a similar framework, the total cost concept.read more When deciding how much to buy from vendors or how many lots to send to the company's production facilities, it is necessary to find the lowest total cost that results from the combined impact of the four individual costs. Inventory cost managers often have to make important decisions about how to balance ordering and carrying costs. When the order quantity per unit time is small, the number of orders increases, which leads to a higher ordering cost. This may occasionally result in stockouts and market loss. Inventory cost accounting Physical inventory levels must be converted to inventory costs in almost every business analysis involving inventory costs. Although the precise determination of the cost rate to be applied is actually a matter of cost accounting, here are the primary components: Capital Cost This is typically an internal funding rate multiplied by the product's value. When the product moves down the supply chain, its value (materials, labour, transportation, etc.) increases.  Storage Cost Inventory units consume physical space and may incur heating, refrigeration, insurance, etc. In order to determine which parts of these costs are actually driven by inventory levels and which can be considered more or less, an activities-based cost (ABC) analysis is typically required. The magnitude of the inventory cost change you are studying will determine the answer. Obsolescence Cost Obsolescence cost is a bit harder to figure out. When technology or style changes happen, your current products may become obsolete. The more inventory you have, the more vulnerable you are to this kind of loss. Quality Cost The probability of product damage is usually increased when there are high inventory cost levels, which also leads to slower feedback loops between supply chain partners. The result: lower levels of quality and a rise in the myriad costs associated with low quality. Again, these expenses are hard to calculate precisely, but the current consensus is that they can be quite substantial. It is inevitable that this method has numerous issues. For one, inventory costs are not solely caused by a product's value. Other product attributes, such as size, the need for refrigeration, obsolescence risk, etc., determine major components of inventory cost. Applying a single cost rate to all products at all production and distribution stages can be a big oversimplification.  Secondly, when analyzing the inventory cost rate, one implicitly assumes that only minor inventory changes will occur. According to the original ABC analysis of the inventory cost rate, "a major structural change in the supply chain may eliminate all categories of expenses that were considered."  Types Of Inventory Cost Ordering costs  Every time your business buys something from a supplier, you must think about the associated ordering costs; There will always be ordering costs, even if the order in question is quite small. Estimate the cost of an order by tracking the purchase requisition, purchase orders and invoicing, labour costs, and transportation and processing fees. Although some of these expenses, like preparing invoices, will be minor, Others, such as purchase orders, will cost much more.  Carrying costs Companies pay inventory costs, sometimes referred to as "inventory holding costs", for keeping their inventory items in stock. Costs of carrying can truly range from taxes and insurance to employee expenses and the cost of replacing damaged goods. Knowing how much profit your current inventory can make requires having an accurate view of your carrying costs. Businesses, fortunately, can cut these costs by using a productive warehousing layout and using inventive inventory management. Stockout costs  Stockout costs refer to any potentially lost sales due to a product's lack of supply, or the loss of income and expenditure as a result of a supply shortage. For instance, if a customer orders the last unit of an SKU you have in stock, but that item is incorrect, this can happen. It will be considered a loss because you cannot ship a defective product or have enough inventory to fulfil the order. If a customer sees that the product they want is out of stock on your website and decides to buy it elsewhere, it may result in stockout costs. Shortage Costs A company incurs shortage costs when it does not have enough inventory on hand. These expenses include overnight shipping costs to get items that are not in stock, lost margins on unfinished orders, and lost revenue from customers who go elsewhere to buy things. When deciding how much inventory to keep on hand, this is very important, especially for businesses that compete on customer service. Spoilage Costs When perishable goods are not sold enough quickly, they can deteriorate or spoil; therefore, inventory control is crucial to prevent spoilage. Expiring products are a source of concern for many industries. Businesses like food and beverage, pharmaceutical, healthcare, and cosmetics are affected by the expiration and use-by dates of their products. Inventory Cost Methods Products, partially completed products, raw materials, and supplies are all part of an inventory that is waiting for the end of a sales transaction. Inventory cost is  usually calculated using the four cost formulas below:     Specific Identification Firms that have unique, valuable goods like automobiles, paintings, expensive jewellery, and custom-made furniture use the specific identification technique. But if items in inventory are interchangeable, specific identification becomes impractical. In such situations, firms typically use FIFO, LIFO, or Average-Cost cost flow methods to assume the sold items and remaining items in inventory. First-In-First-Out (FIFO)   In most companies, the FIFO method is consistent with the physical flow of inventories. It is based on the assumption that the latest purchases remain in the ending inventory and the earliest purchases are sold first. This indicates that the FIFO method values end inventory cost at current. Some argue that this FIFO method's chronological cost flow is in line with good business practices, especially for obsolete or deteriorating goods.  Last-In-First-Out (LIFO)  The LIFO approach does not correspond to the actual physical inventory flow. According to the LIFO method, the earliest purchases are sold first, so ending inventory is based on the costs of the earliest purchases. Since current costs are equal to current revenues, some claim that this method of valuation can lead to realistic reported profits. However, some contend that the value of inventories at the earliest prices can give an unrealistic representation of the current value of the inventory using the LIFO method. Average-Cost/Weighted Average-Cost  The weighted-average cost method is an alternative to FIFO and LIFO methods. When the inventory is made up of identical, interchangeable units and does not flow in any particular physical pattern, the average-cost system is appropriate. According to this approach, the value assigned to inventory is the overall cost of all inventory items that are available for sale during the given period. This technique smoothens the fluctuations in the cost of inventory items due to the technique of assigning an average cost.  Conclusion Inventory levels are managed and maintained by a set of policies known as an inventory system. It decides how large orders should be and when stock should be replenished. When deciding how much to buy from vendors or how many lots to send to the company's production facilities, it is necessary to find the lowest total cost that results from the combined impact of the four individual costs. Physical inventory levels must be converted to inventory cost in almost every business analysis involving inventory. Although the precise determination of the cost rate to be applied is actually a matter of cost accounting.    

July 11, 2023